CHAPTER 11 PLAN CONFIRMATION

the claim, in cash on the effective date, rendered the claim unimpaired and, as noted above, the best interests test of § 1129(a)(7) applies only to impaired claims. This was changed for cases filed after October 22, 1994, however, by the Reform Act's repeal of § 1124(3). The stated purpose of this amendment was to reverse a case that properly held that this method of unimpairing unsecured claims would permit a solvent debtor to avoid interest on unsecured claims. Unfortunately, the change was not limited in its application to solvent debtors, so now even if an insolvent debtor pays the full allowed amount of unsecured claims in cash on the effective date such claims are still impaired, and therefore their votes must be solicited.

A problem can arise when there is an undersecured, nonrecourse claim, which under Chapter 11 is required to be allowed as if it had recourse pursuant to § 1111(b). If the deficiency claim must be classified with general unsecured claims and provided the same treatment, and there is insufficient value in the estate to pay all unsecured claims in full, any value given to the recourse deficiency claim would reduce the amount the general unsecured claims would receive below what they would get on liquidation under Chapter 7, where the nonrecourse claim is not deemed recourse and therefore is not allowed.

The best interests test also requires consideration of the amount that could be recovered from general partners pursuant to § 729(a). Chapter 11's modification of the "jingle rule" creates an accounting conundrum when there are multiple general partners.

Since property recovered by use of the avoiding powers becomes property of the estate under § 541(a)(3) (4), applicable in both chapters 7 and 11, the best interests test should include the value of such property, but at least one court has held to the contrary.

The Code does not provide a solution to these problems, nor does the legislative history indicate they were considered. One solution is separate classification and differing treatment to take into account how the claims would be treated under chapter 7. Although this has been rejected by several courts as impermissible "gerrymandering," the Seventh Circuit has upheld it.